GAGE COLLEGE

SCHOOL OF GRADUATE STUDIES

MBA PROGRAM

ASSIGNMENT ON ACCOUNTING & FINANCE FOR MANAGERS

GROUP ASSIGNMENT #1 – CASE ANALYSIS

FMA – Ethical Mini Case 01 – Assigned to Group 1 Students

Elshaday Lakew, the president of Elshaday Enterprises, applied for a Birr 1.5 million loan from
Buna International Bank S.C. The bank requested financial statements from Elshaday
Enterprises as a basis for granting the loan. Mr. Elshaday has told his accountant to provide the
bank with a balance sheet, an income statement, and a statement of owner’s equity. Mr.
Elshaday has decided to omit the statement of cash flows, since there was a net decrease in
cash during the past year.

Required:
Discuss whether Mr. Elshaday is behaving in an ethical manner by omitting the statement of
cash flows. (Support your analysis with sufficient justification).

F&MA Group Assignment 02 – Assigned to Group 1

Financial Reporting Problem

Bethelehem Andargatchew, a new staff accountant, is confused because of the complexities

involving accounting standard-setting. Specifically, she is confused by the number of bodies
issuing financial reporting standards of one kind or another and the level of authoritative
support that can be attached to these reporting standards. Bethelehem decides that she must
review the environment in which accounting standards are set, if she is to increase her
understanding of the accounting profession. Bethelehem recalls that during her accounting
education there was a chapter or two regarding the environment of financial accounting and
the development of GAAP. However, she remembers that her instructor placed little emphasis
on these chapters.

Instructions
(a) Help Bethelehem by identifying key organizations involved in accounting rule-making.
(b) Bethelehem asks for guidance regarding authoritative support. Please assist her by
explaining what is meant by authoritative support.
(c) Give Bethelehem a historical overview of how rule-making has evolved so that she will not
feel that she is the only one to be confused.
(d) What authority for compliance with GAAP has existed throughout the history of rule-
making?

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F&MA Group Assignment – 3: Assigned to Group 2
At the end of the current month, Metasebia Kiflu, an accountant prepared a trial balance for
Joseph & Bros Consults. The debit side of the trial balance exceeds the credit side by a
significant amount. Metasebia has decided to subtract the difference from the balance of the
miscellaneous expense account in order to complete the preparation of the current month’s
financial statements by a 10.00 O’clock deadline. Metasebia will look for the difference next
week when she has sufficient time.

Required
Discuss whether Metasebia Kiflu is behaving in an ethical manner. Support you response with
sufficient justification.

F&MA: Discussion Case – 04: Assigned to Group 2

The following excerpt is from a conversation between Ato Demelash Wendatir, the president
and chief operating officer of Deme Construction Company, and his neighbor, W/ro, Tirhas
Damte.
W/ro Tirhas, Deme, I’m taking a course in night school, “Intro to Accounting.” I was wondering
—could you answer a couple of questions for me?
Ato Demelash: Well, I will if I can.
W/ro Tirhas: Okay, our instructor says that it’s critical we understand the basic concepts of
accounting, or we’ll never get beyond the first test. My problem is with those rules of debit and
credit . . . you know, assets increase with debits, decrease with credits, etc.
Ato Demelash: Yes, pretty basic stuff. You just have to memorize the rules. It shouldn’t be too
difficult.
W/ro Tirhas: Sure, I can memorize the rules, but my problem is I want to be sure I understand
the basic concepts behind the rules. For example, why can’t assets be increased with credits
and decreased with debits like revenue? As long as everyone did it that way, why not? It would
seem easier if we had the same rules for all increases and decreases in accounts. Also, why is
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the left side of an account called the debit side? Why couldn’t it be called something simple . . .
like the “LE” for Left Entry? The right side could be called just “RE” for Right Entry. Finally, why
are there just two sides to an entry? Why can’t there be three or four sides to an entry?
In a group of four or five, select one person to play the role of Ato Demelash and one person to
play the role of W/ro Tirhas.

1. After listening to the conversation between Ato Demelash and W/ro Tirhas, help
Demelash answer W/ro Tirhas’ questions.
2. What information (other than just debit and credit journal entries) could the accounting
system gather that might be useful to Ato Demelash in managing Deme Construction
Company?

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F&MA: Group Assignment – 05: Assigned to Group 5
The following is an excerpt from a conversation between Molla and Netsanet just before they
boarded a flight to Paris on Ethiopian. They are going to Paris to attend their company’s annual
sales conference.

Molla: Netsanet, aren’t you taking an introductory accounting course at college?

Netsanet: Yes, I decided it’s about time I learned something about accounting. You know, our
annual bonuses are based on the sales figures that come from the accounting department.
Molla: I guess I never really thought about it.
Netsanet: You should think about it! Last year, I placed a birr 750,000 order on December 28.
But when I got my bonus, the birr 750,000 sale wasn’t included. They said it hadn’t been
shipped until January 3, so it would have to count in next year’s bonus.
Molla: A real bummer!
Netsanet: Right! I was counting on that bonus including the birr 750,000 sale.
Molla: Did you complain?
Netsanet: Yes, but it didn’t do any good. Mr. Abesha, the head accountant, said something
about matching revenues and expenses. Also, something about not recording revenues until
the sale is final. I figure I’d take the accounting course and find out whether he’s just jerking me
around.
Molla: I never really thought about it. When do you think Ethiopian will record its revenues
from this flight?
Netsanet: Hmmm . . . I guess it could record the revenue when it sells the ticket . . . or . . . when
the boarding passes are taken at the door . . . or . . . when we get off the plane . . . or when our
company pays for the tickets . . . or . . . I don’t know. I’ll ask my accounting instructor.

Required
1. Discuss the different scenarios in which revenues are recognized in the accounting
records of firms.

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 2. Discuss when Ethiopian should recognize the revenue from ticket sales to properly
match revenues and expenses. Support your argument with sound justification.

F&MA: Group Assignment – 06: Assigned to Group 3

Cliff Hall opened Meridian Co. on January 1, 2009. At the end of the first year, the business
needed additional capital. On behalf of Meridian, Cliff applied to Federal National Bank for a
loan of $300,000. Based on Meridian financial statements, which had been prepared on a cash
basis, the Federal National Bank loan officer rejected the loan as too risky.

After receiving the rejection notice, Cliff instructed his accountant to prepare the financial
statements on an accrual basis. These statements included $48,500 in accounts receivable and
$15,650 in accounts payable. Cliff then instructed his accountant to record an additional
$20,000 of accounts receivable for commissions on property for which a contract had been
signed on December 28, 2009, but which would not be formally “closed” and the title
transferred until January 5, 2010.

Cliff then applied for a $300,000 loan from First City Bank, using the revised financial
statements. On this application, Cliff indicated that he had not previously been rejected for
credit.

Required
Discuss the ethical and professional conduct of Cliff Hall in applying for the loan from First City
Bank.
R JUDGMENT

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F&MA: Group Assignment – 7: Assigned to Group 4

Silver Sales is Property Company with a well-developed portfolio of properties which specializes
in renting retail space. The directors of Silver Sales have become aware that a much larger
quoted company, BCG, has been purchasing shares in Silver Sales and now owns a 25% stake in
the company. Other than BCG’s stake Silver Sales has a wide variety of both private and
institutional investors.

The five executive and two non-executive directors of Silver Sales have called a meeting to
discuss the situation with BCG. The general consensus of the directors is that they personally
would not be happy with any takeover attempt made by BCG. However not having been in this
situation before they are unsure as to what is likely to happen and what options are available to
them.

You are the Chief Financial Officer of Silver Sales and the directors have requested briefing
notes from you regarding this situation.

Required

(a) Prepare a set of briefing notes which describes the regulatory and ethical issues in this
situation.
(b) Explain any defensive measures (both pre-bid and post-bid) that the directors of Silver
Sales could take if a take-over bid which is perceived to be hostile is made by BCG.

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F&MA: Group Assignment – 8: Assigned to Group 3

Dr. Dawit Seyoum, the Chief Administrator of Africa Higher Clinic, a community mental health
agency, is concerned about the dilemma of coping with reduced budgets next year and into the
foreseeable future, but increasing demand for services. In order to plan for reduced budgets, he
first must identify where costs can be cut or reduced and still keep the agency functioning.

Below are some data from the past year.

____________________________________________________________________
Program Area Costs
Administration
Salaries
Administrator Birr 60,000
Assistant 35,000
Two Secretaries 42,000
Supplies 35,000
Advertising & Promotion 9,000
Professional meetings, dues, and literature 14,000
Purchased services
Accounting and Billing 15,000
Custodial & maintenance 13,000
Security 12,000
Consulting 10,000
Community Mental Health services
Salaries (two social workers) 46,000
Transportation 10,000
Outpatient mental health treatment
Salaries
Psychiatrist 86,000
Two social workers 70,000
____________________________________________________________________

Required

1) Identify which costs you think are likely to be discretionary or committed costs. [Support
your response with sufficient/sound justification].

2) One possibility is to eliminate all discretionary costs. How much would be saved? What
do you think of this recommendation? [Support your response with sufficient/sound
justification].

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3) How would you advise Dr. Dawit to prepare for reduced budgets? [Support your
response with sufficient/sound justification].

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F&MA: Group Assignment – 9: Assigned to Group 2

Midrock Mining Company creates and processes a variety of ores and minerals. One of its
operations is a local cleaning plant that produces toxic wastes. For many years the wastes have
been properly disposed of through National Disposal, a company experienced in disposing such
items. However, disposal of the toxic wastes was becoming an economic hardship because
increasing government regulations had caused the cost of such disposal to quadruple in the last
six years.

Fozia Jemal, Director of Financial Reporting for Midrock Mining, was preparing the company’s
financial statements for the year ended December 31, 2012. In researching the material needed
for preparing a footnote on environmental contingencies, Fozia found the following note
scribbled in pencil at the bottom of a memo to the General Manager of the coal cleaning plant.
The body of the memo gave details on the increases in the cost of toxic waste disposals:

Mr. Zemede – We’ve got to keep these costs down or we won’t meet budget.
Can we mix more of these wastes with the shipments of refuse to the Oak Hill
landfill? Nobody seems to notice the coal-cleaning fluids when we mix it in
well.

Fozia was bothered by the note. She considered ignoring it, pretending that she had not seen it.
But after a couple of hours, her conscience would not let her do it. Therefore, she pondered the
following three alternative courses of action.

 Seek the advice of her boss, the vice-president of finance for Midrock.

 Anonymously release the information to the local newspaper.

 Give the information to an outside member of the board of directors of Midrock whom
she knew because he lived in her neighborhood.

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Required

1) Discuss why Fozia Jemal has an ethical responsibility to take some action about her
suspicion of illegal dumping of toxic wastes. [Support your response with
sufficient/sound justification].

2) For each of the three alternative courses of action, explain whether the action is
appropriate. [Support your response with sufficient/sound justification].

3) Assume that Fozia sought the advice of the vice-president of finance and discovered
that he both knew about and approved of the dumping of toxic wastes. What steps
should she take to solve the conflict in this situation? [Support your response with
sufficient/sound justification].

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F&MA: Group Assignment – 10: Assigned to Group 1

Provide detail answer for the following questions.

Interview two or three local entrepreneurs. If you need help finding entrepreneurs, contact
your local chamber of commerce or other business organizations.

Instructions:
1) Prepare questions such as these:
 How did you get the idea for your business?
 How did you finance the business?
 What skills have helped you start and run the business?
 What personal qualities have helped you be successful?
 What has been your biggest challenge in starting a business?
 What advice would you offer to other would-be entrepreneurs?
2) Conduct the interviews, and then write a general profile of the qualities and skills of a
successful entrepreneur. Use information from all of your interviews.
3) After writing your profile, decide whether you are entrepreneurial material. Explain why
or why not.

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